Monthly Archives: December 2021

A New Year – A New Opportunity

Posted on by
Reply
We’ve completed a second year in this pandemic that upended most of our habits and norms. Before we embrace a quasi-new normal and return to our old ways, we have an opportunity at the start of this year to pause, step back, and review what has and hasn’t worked in our lives.

It’s natural that we should want our financial life to be supportive and in concert with our values and life choices. I encourage you to identify and mobilize behaviors that add energy and positive feelings into your life. This year, prioritize those healthy behaviors and do your best to eliminate or minimize the negative ones.

The Milestones & Impressions notebook can help you create a personal record of what has added value and what makes you feel good each year. Over time, these notebooks will be a source of key events, patterns, and behaviors that mattered in your life. Possibly they will be a resource to help you identify what you wish to include in your ideal life.

Ultimately the process of taking time to reflect provides greater satisfaction and increases financial resiliency (readiness to handle unexpected financial issues in an efficient and streamlined manner). Financially resilient people focus on things they can control, such as meaningful spending, rather than the things that are beyond our control like market behavior. Recent studies suggest that acknowledging the events that bring joy to your life and recognizing from time to time just how fortunate we are will help to increase financial resiliency, and in-turn, well-being.

Be kind to yourself and take the New Year to reimagine yourself and your relationship with your finances.

Here is to a hopeful and happy 2022!

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

2022: Current Retirement Savings Limits

Posted on by
Reply

In 2022, 401K plan employee contribution maximums have increased by $1K to $20,500 and the catch-up (at age 50) remains at $6,500 (or a maximum of $27K). Total employer and employee contributions for 401K plans has increased to $61K. On the other hand, pension plan contributions are limited to $260K but the amounts are determined early in 2022. IRA contributions remain at $6K and for those over age 50 at $7K but tax deductibility is dependent on earnings and whether you’ve contributed to a 401K/403b plan. A Roth IRA contribution can be made instead of the IRA contribution, and it also has earning limits. Long-Term Capital Gain federal tax rates this year are still at 0%, 15%, and 20% dependent on taxable income levels but these are expected to increase in the new tax plan. Gifts can be made tax free to the recipient up to $16K in 2022 and for non-US citizen spouses this tax-free gift rises to $164K without additional paperwork. Keep in mind that these annual gifting exclusion limits are in addition to the currently huge lifetime tax-free gifting limit of $12.06M per person. The child tax credit and after-tax Roth conversion are part of the new tax plan under consideration.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Potential Tax Changes & Their Implications

Posted on by
Reply
Over the last six months, a good deal of our time has been spent studying the implications of the many tax proposals that were circulating. From the American Jobs Plan, the Made in America Plan, the 99.5% Tax Act, and others, it is still possible that some tax plan will be passed soon. The critical task for us is to better understand what the implications are and what, if anything, should be done ahead of their passage.

We must accept that funding at the level needed to get us through COVID and now infrastructure improvements will require tax increases. It would seem that Congress was looking to fund the proposed plans using sales tax (example, gasoline tax) but this would impact those earning less than what President Biden promised he would target. There seems to be some agreement on taxing businesses at 25% rather than the current 21% (though 29% is still being discussed). Close to 140 countries agreed in October on a global minimum corporate tax rate of 15% targeting the largest international firms, so that’s already baked in. Other items being considered have large implications for those who earn over $500K a year and who have a large taxable gain (home or portfolio). Those expecting to sell a business or a home with a large gain may need to prepare for alternative ways to lower their taxable income or accept the large one-time tax liability.

Current proposals include long-term capital gains taxed at 43.4% from the current maximum of 23.8% (plus state) for those in the higher tax brackets. A change in the step-up in basis on death is also likely since it makes sense with increased capital gains taxes. This is expected to apply to couples with income over $1M (singles are likely to be at $500K income). Keep in mind, if you sell your home or your business you may find yourself in these higher brackets and therefore pay taxes well over 50% of the gain in one year, making it very important to plan for single-year large capital gain realization (for the time being, there is no exception for single-year events).

These proposed changes encourage us all to annually consider the use of Roth conversions, 401K Roth contributions, charitable planning (Donor Advised funds) and estate planning strategies.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com